Southwest to Hawaii: Will there be a ‘Southwest Effect’?

Southwest Airlines announced it will start flying from the West Coast to Hawaii next year. Although it did not announce specific routes, you can bet on flights from Los Angeles and Oakland, and maybe from San Diego, San Jose, Portland, Seattle and possibly Burbank if the runway is long enough. But travelers aren’t expecting much in the way of new routes; instead, the big question is whether Southwest will bring down the fares. More information

For decades, the “Southwest Effect” has been conventional wisdom in the airline business: When Southwest enters a new market for the first time, fares on all airlines in that market go down and stay down. It’s referenced in even some learned government documents. So, Southwest’s announcement of upcoming service from the West Coast to Hawaii raises the obvious question of whether the Hawaiian market will see the effect. The answer is “probably, but only a small effect.” There seems to be room for a Southwest Effect, but whether it will happen is an open question.

West Coast to Hawaii doesn’t look ripe for major fare disruption. Previously, the Southwest Effect has been most pronounced on routes previously dominated by just one or two lines that were able to keep fares high because of their entrenched position. But Hawaii isn’t like that. Currently, six U.S. airlines compete in flying from the west to Hawaii — Allegiant, Alaska, American, Delta, Hawaiian and United — and Air Canada and WestJet fly there from western Canada. In fact, JetBlue and AirTransat are the only sizable U.S. or Canadian airlines that don’t fly to Hawaii.

Six competing airlines on any route is a lot these days — enough, you’d think, to keep fares competitive. Nevertheless, current fares are higher than you’d expect. I recently compared fares from Los Angeles and San Francisco to Honolulu and to New York City, both similar distances; midweek round-trips for mid-November, pre-holiday, and for next May:

November 2017: Los Angeles to Honolulu around $500, Los Angeles to New York around $300, San Francisco to Honolulu around $550, San Francisco to New York around $400.

May 2018: Los Angeles to Honolulu around $600, Los Angeles to New York around $300, San Francisco to Honolulu around $500; San Francisco to New York around $300.

Southwest doesn’t fly nonstop from the West Coast to the New York or Boston areas in November, but fares from Oakland to Newark for next May start at around $360.

Obviously, differentials of $100 to $300 indicate that there’s room for price cuts to Hawaii. But two factors militate against fare cuts: As far as I can tell, fuel prices are a bit higher in Hawaii than on the mainland. But the main factor is that almost all Hawaiian traffic is for leisure travel, so the airlines sell very few of the higher priced tickets that business travelers normally buy. If they can’t sell a lot of high-priced tickets, the airlines can’t cut the low-priced tickets as much as they can on other routes.

The question is whether Southwest will initiate big fare cuts or just offer an introductory flash sale, and then pretty much match the incumbents. Southwest may figure that it will find a big enough market just by catering to “its own” customers, who like its brand: Two free checked bags will look really good to many Hawaii visitors. But it may also be more aggressive.

All in all, my take is that you’ll probably see some overall lowering of fares to Hawaii, with occasional short-term flash sale cuts. But those cuts won’t be the sort that the traditional Southwest Effect would predict — there just isn’t room in the current fare structure.

On the other hand, Southwest pretty well guarantees you aren’t likely to see any overall fare hikes. And if you like Southwest’s deal, you’ll be happy to see it in Aloha land.